Ask Question, Ask an Expert


Ask Basic Finance Expert

problem: Cost of capital Coleman Technologies is considering a main expansion program that has been proposed by the firm's information technology group. Before proceeding with the expansion, the company must estimate cost of capital. Suppose that you are an assistant to Jerry Lehman, the financial vice president. Your 1st task is to estimate Coleman's cost of capital. Lehman has provided you with the following data, which he believes may be relevant to your task.

[A] The company's tax rate is 40%.

[B] The current price of Coleman's 12% coupon, semiannual payment, no callable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

[C] The current price of the company's 10%, $100 par value, quarterly dividend, perpetual preferred stock is $111.10.

[D] Coleman's common stock is currently selling for $50 per share. Its last dividend (D_0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman's beta is 1.2, the yield on T-bonds is 7%, and the market risk premium is estimated to be 6%. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 4%.

[E] Coleman's target capital structure is 30% debt, 10% preferred stock, and 60% common equity.

find out Coleman's overall, or weighted average cost of capital (WACC)? Ignore flotation rates.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M920372

Have any Question? 

Related Questions in Basic Finance

Describe each of the three components in the aim planning

Describe each of the three components in the AIM planning process for business messages: audience analysis, idea development, and message structuring.

Many states allow payday lending but impose restrictions on

Many states allow payday lending but impose restrictions on the practice. For example, a state may limit the amount someone can borrow or the number of times a loan can be rolled over. Find out whether payday lending is ...

5 pages neededevaluate financial markets securities and

5 pages needed Evaluate Financial Markets, Securities, and Institutions Along with Associated Risks In a paper, provide an evaluation of the following points: 1. Financial engineering has been disparaged as nothing more ...

Carazona inc is a us firm that has a large subsidiary in

Carazona, Inc., is a U.S. firm that has a large subsidiary in Indonesia. It wants to finance the subsidiary's operations in Indonesia. However, the cost of debt is currently about 30 percent there for firms like Carazona ...

According to the american red cross approximately 10 of the

According to the American Red Cross, approximately 10% of the human population is blood type B-positive. If we select 20 people at random, find the probability that more than 3 people in the sample have blood type B-posi ...

Capital asset pricing model levine manufacturing inc is

(Capital Asset Pricing Model) Levine Manufacturing, Inc., is considering several investments. The rate on Treasury bills is currently 6.75 percent, and the expected return for the market is 12 percent. What should be the ...

How is a surplus in the current account related to a

How is a surplus in the current account related to a deficit in the capital account? How is a deficit in the current account related to a surplus in the capital account?

Why did the mexican government establish a controlled

Why did the Mexican government establish a controlled foreign-exchange market, and why did that market differ from the free market?

Quantum technology had 652000 of retained earnings on

Quantum Technology had $652,000 of retained earnings on December 31, 20X2. The company paid common dividends of $33,300 in 20X2 and had retained earnings of $513,000 on December 31, 20X1. a. How much did Quantum Technolo ...

Define the concepts of compounding and discountinguse

Define the concepts of compounding and discounting. Use future values and present values to explain how these concepts are related.

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate